States wary of fund sharing as Centre eyes structural reset of MGNREGA

Several states have expressed concerns over the Centre’s proposed overhaul of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), especially the move towards fund sharing and shift from a demand-based model to a standard budgeted allocation system.

Sources told Business Today TV that state finance ministers are considering writing to the Centre, expressing their reservations about the financial and operational implications of the proposed changes.

At the heart of this pushback is the Centre’s plan to replace the existing MGNREGA framework with a restructured rural jobs programme, the Viksit Bharat Guarantee for Rozgar and Ajeevika Mission (Gramin) that changes the funding structure. Under the proposal, states would be required to share the cost of the scheme, with a 60:40 split between the central state for most states and union territories, 90:10 for northeastern and Himalayan states and union territories with legislatures, and 100% central funding only for union territories without legislatures.

States say that although greater fiscal responsibility has been mooted as a reform, the new structure would place an additional burden on the state’s already strained finances. Unlike the current MGNREGA system where funding is demand-driven and open-ended on the basis of working budgets provided by states, the revamped scheme will include benchmark state-level allocations determined by the Center annually, effectively capping expenditure.

States also feel uneasy about losing flexibility in responding to local labor demand, especially during periods of stress such as drought or floods, the sources said. “The move from demand-based financing to a modular system risks taking away the real demand for jobs on the ground,” a senior state official said, adding that finance ministers are assessing the impact before formally communicating their concerns to the Union government.

However, the center stresses that renovation is necessary to reduce misuse and leaks. Government sources indicated that some states were diverting MGNREGA funds towards government infrastructure projects, thus conserving their own budgets as central funds were exhausted.

Officials say the proposed changes, including digital presence through the National Mobile Monitoring System and Aadhaar-linked payments, are part of a broader effort to plug leakages and ensure funds reach the intended beneficiaries. However, with states wary of sharing costs and ceding control over allocations, the Center may face resistance as it presses ahead with plans to reshape one of the country’s largest social security programmes.

For FY 2025-26, the total expenditure under MGNREGA stands at Rs 62,170.07 crore so far, while the Center has released Rs 68,806.96 crore out of the full budgetary allocation of Rs 86,000 crore.